P21-2 (continued)
2. (continued)
2010
Jan. 1 Lease Receivable ($35,000 x 8) 280,000.00
Sales 185,090.68
3. The lessor must disclose:
a. A general description of the leasing arrangements
P21-3
1. Present value = Lease payments x PV factor for 5 payments at 12%
21-42
P21-3 (continued)
2. Summary Table of Lease Payments and
Interest Expense for Timmer Company
(1)
Date
(2)
Lease
Payment
Required
(3)
Interest Expense
at 12% on
Obligation Balancea
(4)
Reduction
of Lease
Obligation
(5)
Balance
of Lease
Obligation
January 1, 2010
December 31, 2010
$83,222.92
$36,000.00a
$47,222.92b
$300,000.00
252,777.08c
3. 2010
Jan. 1 Leased Equipment 300,000
Capital Lease Obligation 300,000
Dec. 31 Capital Lease Obligation 47,222.92
Interest Expense 36,000.00
P21-3 (continued)
3. (continued)
Dec. 31 Depreciation Expense:
4. TIMMER COMPANY
Balance Sheet (Partial)
December 31, 2010
Assets Liabilities
5. Under U.S. GAAP, the Timmer Company would classify the lease as an
operating lease. The lease does not meet either of the first two criteria. The
third criterion is not met since the 3-year lease life is 60% of the economic life of
21-44
Summary Table of Lease Payments Received and
Interest Revenue Earned by the Calden Company
(1)
Date
(2)
Lease
Payment
Received
(3)
Interest
Revenue at
15% on Net
Investment
(4)
Reduction
of Net
Investment
(5)
Lease
Receivable
(6)
Unearned
Interest:
Leases
(7)
Net
Investment
January 1, 2010
December 31, 2010
$65,000.00
$46,203.16c
$18,796.84d
$570,000a
505,000e
$261,978.97
215,775.81f
$308,021.03b
289,224.19g
a$570,000 is the undiscounted value of the lease payments plus the unguaranteed residual value
b$308,021.03 is the present value of the lease payments plus the present value of the unguaranteed residual
value
P21-4
1.
P21-4 (continued)
2. Criteria for direct financing lease:
Application of Criteria for Determination
of Lease Classification
Column A Criteria Met Remarks
1. Transfer of ownership at
end of lease No
Column B Criteria Met Remarks
1. Collectibility assured Yes
3. 2010
Jan. 1 Equipment Leased to Others 308,021.03
Cash 308,021.03
P21-4 (continued)
3. (continued)
Dec. 31 Cash 65,000
Lease Receivable 65,000
4. CALDER COMPANY
Balance Sheet (Partial)
December 31,
Assets 2011 2010
Current Assets
Net investment in direct
21-47
P21-5
1. (a) Landlord Company computation of annual rental amount
2. Summary Table of Lease Payments Received and
Interest Revenue Recognition for the Landlord Company
(1)
Date
(2)
Annual Lease
Payments
Received
(3)
Interest
Revenue at
14% on Net
Investment
(4)
Lease
Receivable
(5)
Unearned
Interest:
Leases
(6)
Net
Investment
Jan. 1, 2010
Jan. 1, 2010
Dec. 31, 2010
$67,673.02
$32,525.78c
$406,038.12a
338,365.10
$106,038.12b
73,512.34
$300,000.00
232,326.98
264,852.76d
21-48
P21-5 (continued)
3. Journal entries:
Tenant Company (lessee):
2010
Jan. 1 Leased Equipment 300,000
Capital Lease Obligation 300,000
31 Interest Expense 32,525.78
Accrued Interest on
Capital Lease Obligation 32,525.78
2011
Jan. 1 Accrued Interest on
Capital Lease Obligation 32,525.78
21-49
P21-5 (continued)
3. (continued)
Landlord Company (lessor):
2010
Jan. 1 Equipment Leased to Others 300,000.00
Cash 300,000.00
4. Income statements and balance sheets:
Tenant Company Disclosure (Lessee)
Comparative Balance Sheets (Partial)
December 31
Assets Liabilities
2011 2010 2011 2010
Leased Current
21-50
P21-5 (continued)
4. (continued)
Comparative Income Statements (Partial)
For Year Ended December 31
2011 2010
Expenses
Interest expense $27,605.16 $32,525.78
The equipment reverts to the Landlord Company at the end of the lease.
Note 2: Capital leases. The following is an analysis of the leased property.
Asset Balances at
December 31
2011 2010
The following is a schedule by years of future lease payments under capital
leases together with the present value of the net lease payments as of
December 31, 2011:
Year ending December 31
21-51
P21-5 (continued)
4. (continued)
Landlord Company Disclosure (Lessor)
Comparative Balance Sheets (Partial)
December 31,
Assets 2011 2010
Current Assets
Comparative Income Statements (Partial)
For Year Ended December 31
2011 2010
Revenues
Interest revenue: leases $27,605.16 $32,525.78
Note 1: Description of leasing arrangements. Landlord Company is leasing
21-52
P21-6
2. Summary of Lease Payments and Interest Receipts
(1)
Date
(2)
Annual Lease
Payments
Received
(3)
Interest
Revenue at
12% on Net
Investment
(4)
Lease
Receivable
(5)
Unearned
Interest:
Leases
(6)
Net
Investment
Jan. 1, 2010
Jan. 1, 2010
$96,264.02
$501,320.10a
405,056.08
$101,320.10b
$400,000.00
303,735.98
P21-6 (continued)
3. 2010
Jan. 1 Equipment Leased to Others 400,000.00
Cash 400,000.00
1 Lease Receivable
($481,320.10 + $20,000) 501,320.10
Equipment Leased to Others 400,000.00
Unearned Interest: Leases 101,320.10
P21-7
1. (a) Calculation of selling price
Selling price = $32,000 x PV factor for 8 receipts at 14%
21-54
Summary Table of Lease Payments Received and
Interest Revenue Earned by the Lamplighter Company
(1)
Date
(2)
Lease
Payment
Received
(3)
Interest
Revenue at
14% on Net
Investment
(4)
Reduction
of Net
Investment
(5)
Lease
Receivable
(6)
Unearned
Interest:
Leases
(7)
Net
Investment
January 1, 2010
December 31, 2010
December 31, 2011
$32,000
32,000
$21,763.68c
20,330.59
$10,236.32d
11,669.41
$276,000a
244,000e
212,000
$120,545.17
98,781.49f
78,450.90
$155,454.83b
145,218.51g
133,549.10
21-54
P21-7 (continued)
1.(b)
P21-7 (continued)
2. This is a sales-type lease because the present value of the lease payments
3. 2010
Jan. 1 Lease Receivable
($256,000 + $20,000) 276,000.00
Dec. 31 Cash 32,000
Lease Receivable 32,000
21-55
21-56
P21-7 (continued)
4. LAMPLIGHTER COMPANY
Balance Sheet (Partial)
December 31,
Assets 2010 2011
Current Assets
P21-8
1. Application of Criteria for Determination
of Lease Classification
Column A Criteria Met Remarks
1. Transfer of ownership
at end of lease No
21-57
P21-8 (continued)
1. (continued)
This lease is a direct financing lease for the Lessor Company and a capital
lease for the Lessee Company.
2. Note: The following table is not required, but it is helpful in making
calculations.
Summary Table for 2010 and 2011
(1)
Lessee
Company
Lessor
(2)
Lease
Payment
Required
Lease
(3)
Interest Expense
(4)
Balance
of Lease
Obligation
21-58
P21-8 (continued)
2. (continued)
c$175,000 – $27,653.77
Entries for Lessee Company:
2010
Jan. 1 Leased Equipment 175,000
Capital Lease Obligation 175,000
1 Capital Lease Obligation 27,653.77
Cash 27,653.77
During Insurance Expense 1,900
the Property Tax Expense 1,300
year Maintenance Expense 600
Cash 3,800
P21-8 (continued)
2. (continued)
Dec. 31 Depreciation Expense:
Leased Equipment 17,500
Accumulated Depreciation:
Entries for Lessor Company:
2010
Jan. 1 Equipment Leased to Others 175,000
Cash 175,000
P21-9
21-60
P21-9 (continued)
1. (c) Summary of Lease and Interest Payments
(1)
Murrell
Builders
Benjamin
Company
Date
(2)
Lease
Payment
Required
Lease
Payment
Received
(3)
Interest
Expense
14%
Interest
Revenue
14%
(4)
Reduction
of Lease
Obligation
Amount of Net
Investment
Recovered
(5)
Balance
of Lease
Obligation
Net
Investment
January 1, 2010
$50,000.00
2. (a) Periodic rental receipt = 14%atadvanceinreceipts4forfactorPV
assetofCost
2. (b) PV of property rights = Periodic rental payment x PV factor for 4
payments in